Rising Interest Rates
The relationship of rising interest rates

How can you track mortgage rates?  There isn’t really an easy answer, unfortunately.  Mortgage interest rates are highly sensitive to the purpose of the loan, credit score and loan-to-value ratio.  Besides, they change every day, and often more than once over the course of the day.

So, what to do?

Three Indices to Help Track Mortgage Rates

While there is no one index that tracks mortgage rates perfectly, there are three easily-available indices that can at least give you a good sense of their direction: The ten-Year U.S. Treasury Bond, the Fannie Mae 60-day yield, and the Freddie Mac Mortgage Market Survey.  Each of these tracks something different, but each helps give you information that can help you track mortgage rates.

Ten-Year U.S. Treasury Bond

Also known as the 10-year bond or 10-year T-Bill, this index tracks the yield that investors are demanding to invest in U.S. Treasury bonds with a due date 10 years from now.  This is the most closely-watched benchmark for folks who are trying to divine the direction of interest rates.  However, mortgage rates are not directly based on the 10-year bond, so why is this a good proxy?

The institutions that invest in mortgages by purchasing mortgage-backed securities also purchase other investments, such as U.S. Treasury Bills.  The purpose of both investments is the same – to invest some of their billions of dollars they manage in safe investments while still earning some interest.  As competing investment vehicles, they tend to track together more or less.

The Easy to Track Index

Track the TNX like you do stock prices
Just search for the symbol “TNX”

The reason the 10-year bond is used as a benchmark is that it is easy to track.  The current yield is reported in real time throughout the course of the day.  To find it, simply look up the stock symbol TNX wherever you like to look for stock quotes.  It’s that easy.

Where the reliability of this index as a proxy for mortgage rates falters is that mortgage rates don’t track it exactly.  U.S. Treasury bonds are considered a much safer investment, so investors can accept a lower yield on these than for mortgage-backed instruments.  The risk on mortgages changes over time as well, so the margin to compensate for that risk changes too.  The yield (think interest rate) on mortgage-backed securities is always higher than that of the 10-year bond, but the difference is not consistent over time.

Despite these limitations, the 10-year T-Bill is the gold standard for tracking mortgage rates, even if it is not exact.  To use this index to track mortgage rates, look at it in the morning to see how the day is starting, and again in the mid to late afternoon to get an idea of where mortgage rates might go tomorrow.

Fannie Mae 60-day yield

Fannie Mae 60-Day Yield
This is a good proxy for the wholesale cost of mortgage rates

The Fannie Mae 60-day yield is the yield that Fannie Mae tells mortgage lenders they want to earn on mortgage loans the lender intends to deliver in 60 days.  This is important because it represents the wholesale cost of a mortgage to a mortgage lender, and is the basis for what your lender decides to charge you.

Related: How Lenders Make a Profit on Your Mortgage

This index is an excellent proxy for mortgage rates because it directly “sets” the minimum rates and costs that a lender has to charge in order to make a profit.  It is published daily and is easy for anyone to find.

Unfortunately, it is only reported once a day, and lender margins vary considerably.  So, while it provides a good foundation for understanding where interest rates are going, it doesn’t tell you what interest rate you’re going to get or at what price.

To use this index effectively, simply look at the index at the beginning of the day.  You’ll know that no lender can offer you a mortgage at that interest rate at zero points and fees, unless of course they are working for free and losing money on your loan.  (Hint: They aren’t.)

You can find today’s 60-day yield here:  Fannie Mae 60-Day Yield

Freddie Mac Mortgage Market Survey

The Freddie Mac Mortgage Market Survey is the only one of these three indices that tracks actual mortgage rates.  Freddie Mac surveys lenders each week on the rates and points for conforming mortgages.

This index tells us what interest rates borrowers are actually being offered and locked at and is easy to find.

However, the Mortgage Market Survey is a backward look at the previous week.  It covers the previous Thursday through Wednesday and is published the next morning.  So, while it is valuable to help you track mortgage rates in the preceding week, it doesn’t tell you where they are today.  Even so, you can gleam a lot of information about long-term trends from it.

To best use this index, look at it every Thursday morning when the data is as fresh as possible.  To find it, simply click here: Freddie Mac Mortgage Market Survey

Why Focus on Fannie and Freddie to Track Interest Rates?

Fannie Mae and Freddie Mac (commonly called “the agencies”) purchase the vast majority of mortgages in the U.S.  They pool mortgages and then sell mortgage-backed securities to institutional investors.  Those securities are backed by the U.S. Government, making them less risky than other similar investments.  Investors are therefore willing to take a slightly lower yield on their investment, which means you’ll pay a lower interest rate for a mortgage sold to Fannie or Freddie than for a non-conforming, or “jumbo” loan.

If you want to track mortgage rates, then, data from Fannie and Freddie are more stable, more reliable, and better represent the rates that the majority of homeowners or homebuyers will get.

Casey Fleming, Mortgage Advisor and Author of The Loan Guide: How to Get the Best Possible Mortgage

About Casey Fleming: Casey Fleming is a veteran mortgage advisor (NMLS 344375) and Author of The Loan Guide: How to Get the Best Possible Mortgage.  Casey advises clients  throughout California, and is based in the heart of Silicon Valley.  He writes articles regularly for several online publications, is a subject-matter expert for two prominent finance-related sites, and is regularly quoted in articles for many other publications.

This article represents the opinions of Casey Fleming, and not necessarily those of Fairway Independent Mortgage Corp.  This analysis was prepared with the best information available at the time it was written.  Neither Casey Fleming, nor Fairway Independent Mortgage Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source.  No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor Fairway Independent Mortgage Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.

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